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Published online by Cambridge University Press: 28 March 2014
In this article attention is focused on the features of the emerging Romanian banking system, its failures, and their determinants. These failures were either politically driven or simply a result of the weak regulatory capacity of the state (as the owner of the banks) and lax monitoring from the central bank, as the central authority entrusted with the responsibility to maintain a well-functioning banking system. The reluctance of various governments, regardless of their political orientation, to apply sanctions against banks that are in trouble until the last possible moment encourage excessive risk-taking when banks first encounter financial difficultics, and asset-stripping when the insiders realize that a bank's continued viability is in jeopardy. Based on a number of case studies, the article argues that, in post-1989 Romania, insider trading, self-loans and blunt theft appeared more as systemic features rather than isolated incidents.
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9 For a good discussion on the debate about financial repression, as well as a comparative discussion of financial systems, see for instance R. I. McKinnon, Money and Capital in Economic Development, Washington, Brookings Institution, 1973; J. Fry, Money, Interest and Banking in Economic Development, Baltimore, Johns Hopkins University Press, 1988; S. Haggard, C. H. Lee and S. Maxfield (eds), The Politics of Finance in Developing Countries, Ithaca, NY, Cornell University Press, 1993.
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11 A closer look at monthly nominal interest rate data revealed a large fluctuation from one month to another, with interest spreads as high as 40 per cent.
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21 Ibid., 29 July 1996.
22 This rule stipulated that a company was allowed to keep all its accounts with one bank only. This regulation was supposed to provide banks with leverage on those companies inclined to avoid payment of their loans by allowing the bank to freeze all the other accounts held by that company.
23 For a typical example of this situation, see for instance the Romanian Constitutional Court's Decision no. 101, Bucharest, Monitorul Oficial, 9 July 1998.
24 The information on Banca Agricola is based on several press reports and confidential interviews with experts from the Governmental Accounting Office, Bucharest, Spring 2001.
25 For further details on the overall amount covered by public funds in the Banca Agricola case, see the special report on bank frauds in Cotidianul, Bucharest, 6 April 2000 and Jurnalul National, Bucharest, 24 October 2000.
26 Petre Roman and Ion Iliescu were clearly rivals for power within the National Salvation Front; furthermore, they held divergent views of the best way forward in reforming the economy. As a result, it was not long before the party split into two warring camps led by the two former political allies. Eventually these two wings of the party evolved into separate parties. Ion Iliescu remained at the top of the Party of Social Democracy of Romania (PDSR) and Petre Roman became the leader of the Social Democratic Party (renamed subsequently the Democratic Party). The Democratic Party forged an alliance with other opposition parties against Iliescu's party and became part of the CDR-led coalition government during 1996–2000.
27 A cardboard billionaire is typically a close friend or relative of a well-positioned politician. Usually, he or she has little, if any, previous experience in the business sector, or even worse, may have a track record of defaulting on bank loans.
28 See R. Tudor, ‘Guvernul a aprobat stingerea datoriei Petrom catre AVAB’, Cotidianul, 7 June 1999. Available online from http://www.cotidianul.ro (accessed 16 April 2001).
29 T. Papahagi, ‘Semnarea acordului stand-by se amana’, Cotidianul, 22 June 1999. Available from: http://www.cotidianul.ro/anterioare/1999/economic/ (accessed 4 June 2000).
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34 The press has consistently presented cases of corruption and dubious privatization deals that benefited the political clientele of the ruling coalition not only during the early 1990s but also during the 1996–2000 period of CDR-led coalition government (see for instance the privatization of Romtelecom, the national telecom operator).
